Impressive Earnings May Not Tell The Whole Story For ANY Biztonsági Nyomda Nyrt (BUSE:ANY)

ANY Biztonsági Nyomda Nyrt. (BUSE:ANY) announced strong profits, but the stock was stagnant. Our analysis suggests that shareholders have noticed something concerning in the numbers.

See our latest analysis for ANY Biztonsági Nyomda Nyrt

Zooming In On ANY Biztonsági Nyomda Nyrt's Earnings

Many investors haven't heard of the accrual ratio from cashflow, but it is actually a useful measure of how well a company's profit is backed up by free cash flow (FCF) during a given period. To get the accrual ratio we first subtract FCF from profit for a period, and then divide that number by the average operating assets for the period. The ratio shows us how much a company's profit exceeds its FCF.

As a result, a negative accrual ratio is a positive for the company, and a positive accrual ratio is a negative. While it's not a problem to have a positive accrual ratio, indicating a certain level of non-cash profits, a high accrual ratio is arguably a bad thing, because it indicates paper profits are not matched by cash flow. Notably, there is some academic evidence that suggests that a high accrual ratio is a bad sign for near-term profits, generally speaking.

ANY Biztonsági Nyomda Nyrt has an accrual ratio of 0.50 for the year to December 2023. Statistically speaking, that's a real negative for future earnings. To wit, the company did not generate one whit of free cashflow in that time. Over the last year it actually had negative free cash flow of Ft3.4b, in contrast to the aforementioned profit of Ft4.27b. It's worth noting that ANY Biztonsági Nyomda Nyrt generated positive FCF of Ft7.3b a year ago, so at least they've done it in the past. One positive for ANY Biztonsági Nyomda Nyrt shareholders is that it's accrual ratio was significantly better last year, providing reason to believe that it may return to stronger cash conversion in the future. As a result, some shareholders may be looking for stronger cash conversion in the current year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of ANY Biztonsági Nyomda Nyrt.

Our Take On ANY Biztonsági Nyomda Nyrt's Profit Performance

As we have made quite clear, we're a bit worried that ANY Biztonsági Nyomda Nyrt didn't back up the last year's profit with free cashflow. As a result, we think it may well be the case that ANY Biztonsági Nyomda Nyrt's underlying earnings power is lower than its statutory profit. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For example, ANY Biztonsági Nyomda Nyrt has 3 warning signs (and 2 which are a bit unpleasant) we think you should know about.

This note has only looked at a single factor that sheds light on the nature of ANY Biztonsági Nyomda Nyrt's profit. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying to be useful.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.